Question

Prior to the early twentieth​ century, a worker who was injured on the job could collect damages only by suing his employer. To sue​ successfully, the workeror his​ family, if the worker had been killedhad to show that the injury was due to the​ employer's negligence, that the worker did not know the job was​ hazardous, and that the​ worker's own negligence had not contributed to the accident. These lawsuits were difficult for workers to​ win, and even workers who had been seriously injured on the job often were unable to collect any damages from their employers. Beginning in​ 1910, most states passed​ "workers' compensation" laws that required employers to purchase insurance that would compensate workers for injuries suffered on the job. A study by Price Fishback and Shawn Kantor of the University of Arizona shows that after the passage of​ workers' compensation​ laws, wages received by workers in the coal and lumber industries fell.

Required:
Briefly explain why passage of workers’ compensation laws would lead to a fall in wages in some industries.

Answer 1

Wages would fall due to an increase in labor costs.

When the workers compensation laws were not there, the employers only had to worry about one labor cost, that of paying their employees. With the introduction of worker's compensation, they then had to get insurance for their employees as well.

This led to an increase in the costs of labor which meant an increase in production costs and a decrease in profitability. To compensate for this, the employers cut wages in order to be able to pay for both the insurance and wages and still pay the same general amounts they were paying as wages such that their production costs don't rise significantly.